The government imposes a luxury tax on automobiles that cost more than $40,000. As a result, fewer individuals purchase cars that cost more than $40,000. This is an example of

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Tax shifting occurs when the burden of a tax is passed on from the entity legally responsible for it to another party, in this case, from the sellers (or manufacturers) of luxury automobiles to the buyers, leading to a decrease in demand for cars costing more than $40,000.

The Government Imposes a Luxury Tax on Automobiles That Cost